Mid-Morning Look: January 24, 2019

Scott GreenDaily Market Report

Mid-Morning Look

Thursday, January 24, 19

Index

Up/Down

%

Last

 

DJ Industrials

19.80

0.08%

24,595

S&P 500

4.95

0.19%

2,643

Nasdaq

36.21

0.52%

7,062

Russell 2000

8.22

0.57%

1,462

 

 

U.S. equities are slightly higher amid a busy morning of headlines and earnings. Stocks pulled back from overnight highs after Commerce Secretary Wilbur Ross on CNBC this morning said the U.S. and China are “miles and miles away” from a trade resolution. Also not helping markets were cautious comments from ECB President Draghi who said in his press conference (after the ECB kept rates steady) that the risks to growth “have moved to the downside.” That’s a significant change from six weeks ago, when he described the risks as “broadly balanced” and capped massive monetary support. The partial government shutdown moves into day-34, as the Senate will vote on two measures to reopen the government but will probably fail on both sides as Democrats refuse to support a GOP bill that includes wall funds, while their own temporary funding bill will also probably fail. Meanwhile, the number of Americans filing claims for jobless benefits fell to the lowest level since 1969 last week, dropping below the 200K level. Top sector movers include semi-chipmakers (SOX index rose as much as 5.5%), getting a relief rally after shares of TXN, LRCX and XLNX spike following better quarterly results (or not as bad as feared) and mixed guidance. Airlines were mostly positive after better results from AAL, JBLU and LUV this morning. Industrials get another solid report after TXT after handily beating Q4 earnings expectations and issuing above consensus FY 2019 earnings guidance (though revs missed) – follows better UTX results yesterday. Another busy night of earnings with Dow component INTC due.

 

Treasuries, Currencies and Commodities

·     In currency markets, the euro tumbled (before paring losses) following a cautious growth outlook from ECB President Mario Draghi earlier today, paring recent gains, while the Pound dips vs. the dollar after touching its best levels since mid-November yesterday. Treasury market’s rally given the weaker growth outlook from the ECB today (kept rates unchanged), political turmoil in Venezuela and slowing global growth concerns.

·     Commodity prices mixed as WTI crude edges higher after early losses as investors/traders watch the ongoing political situation in Venezuela and for any potential disruption to supply; inventory data out today from DOE (pushed out one day later) while the API posted a crude build of 6M barrels in the latest week. Natural gas prices rebound after recent drop; gold down slightly.

 

Economic Data

·     Weekly Jobless Claims fell 13Kk to 199K, well below the 218K estimate as initial claims at lowest level since Nov. 1969; the 4-week moving average slipped by 5,500 to 215,000; prior week claims revised down to 212K from 213K; continuing claims fell 24K to 1.713M

·     The leading economic index (LEI) fell 0.1% in December, as the index fell in two of the three final months in 2018

·     The 30-year fixed mortgage rate for week ended today was unchanged at 4.45% from 4.45%, Freddie Mac said; the 15-year rate avg 3.88%, unchanged from a week earlier.

 

 

Macro

Up/Down

Last

 

WTI Crude

0.12

52.74

Brent

-0.16

60.98

Gold

-2.10

1,288.10

EUR/USD

-0.0012

1.1368

JPY/USD

-0.03

109.57

10-Year Note

-0.027

2.719%

 

 

Sector Movers Today

·     Airlines a bright spot after better earnings results; 1) LUV Q4 results beat on top and bottom line while passenger revenue was up 8.6% to $5.32B and revenue per available seat miles increased 1.8% during the quarter/sees Q1 revenue per available seat mile growth of 4% to 5% despite a government shutdown impact; 2) JBLU Q4 results also beat as operating revs rose to $1.97B during the quarter vs. $1.96B consensus and revenue per available seat mile was up 2.4%/sees RASM growth of -2% to +1% for Q1 and cost per available seat mile to be +1.5% to +3.5%; 3) lastly AAL Q4 revs topped views at $10.94B and unit revenue was up 1.7% vs. +1.5%

·     Semiconductors; sector snaps back after 2-day slide following earnings results; semi-equipment stocks rally after LRCX Q2 results topped estimates and better-than-feared outlook (guided Mar Q revenue to a decline of -5% Q/Q) along with a $5 billion buyback (helped AMAT, KLAC, MTSI); XLNX the top gainer in space after its quarterly beat and raise quarter driven by early 5G builds and improved positioning vs Intel s PSG; in analog chip space, TXN was once again mixed ($3,717M/$1.27 vs consensus $3,743M/$1.23), with a ~30 bps GM and with a sizeable ($2B) buyback that significantly reduced share count; STM said Q4 profit and revenue both rose, but that it expects revenue will decline in the Q1 of this year; earnings tonight for INTC, WDC

·     Healthcare services and providers; HCA was added as a positive Fresh Pick at Baird ahead of the company’s 4Q report next Tuesday saying recent commentary from UNH and JNJ suggest 4Q patient volumes remain solid and we think this could translate into EBITDA upside for HCA; EHTH announced preliminary 4Q results with a big 26% beat driven by high Medicare applications and also priced 2.4M share Secondary priced at $48.50

·     Retailers; GOOS downgraded at Wells Fargo as feel the risk/reward today is not as compelling as it once was; DLTH was upgraded to buy at Davidson as believe the stock’s pullback now largely discounts investors’ concerns about the rocky systems implementation along with the promotional Holiday season; in footwear, Morgan Stanley downgraded Adidas (ADDYY) to Underweight as believes the market is underestimating the cyclicality of its business model and stronger competition from peers, which could lead to top-line pressure/NKE likely gains most of ADS’ share loss, adding to their OW conviction.

·     Auto’s; Ford (F) mixed results as Europe and China losses dragged down reported 4Q18 Ebit below Street expectations, and North America Ebit margin of just 7.6% according to Deutsche Bank/meanwhile, Ford said believes a hard Brexit will cost the company $800M in 2019 due to WTO tariffs and a softening pound; DLPH announced a $200M share repurchase plan and dividend suspension; Longbow reduced earnings forecasts for light vehicle supplier coverage saying ALV and THRM face the most EPS downside vs. consensus

 

Stock GAINERS

·     AAL +6%; among top gainers in a strong airline sector following better results from AAL, LUV and JBLU as well as upbeat guidance

·     INO +5%; announced a second sustained complete response in its Phase 1 clinical trial evaluating synthetic DNA vaccine INO-3112 in head and neck cancer patients

·     LRCX +14%; Q2 results topped estimates and better-than-feared outlook (guided Mar Q revenue to a decline of -5% Q/Q) along with a $5 billion buyback

·     SQ +3%; after Nomura/Instinet said its new business debit card “taps the multi-trillion underpenetrated (B2B) commerce market, of which just 4% is carded and sees a $50B gross-payment-volume opportunity

·     TGI +28%; shares jumped after the company said it would transfer its Global 7500 wing program to Bombardier

·     TXT +7%; after handily beating Q4 earnings expectations and issuing above consensus FY 2019 earnings guidance, seeing full-year EPS of $3.55-$3.75 vs. $3.50 analyst consensus estimate

·     URI +6%; following better-than-expected quarterly results and guidance

·     XLNX +18%; after its quarterly beat and raise quarter driven by early 5G builds and improved positioning vs Intel’s PSG

 

Stock LAGGARDS

·     BGG -13%; Q2 EPS was slightly below consensus (though revenue beat), but significantly cut F2019 guidance citing Sears bankruptcy and unfavorable weather internationally

·     BMY %; mixed results as EPS beat but revs just missed as its blockbuster cancer drug didn’t sell as well as analysts had expected with Q4 sales of $1.8B vs. est. $1.84B and also withdrew an FDA application for another use of Opdivo in lung cancer

·     CTL -3%; downgraded to sell and price target lowered to Street-low $11 from $17 at Guggenheim saying the company is poorly positioned for the changing telecom landscape and doubts that the dividend is sustainable

·     CTXS -7%; after four consecutive quarters of 5%-7% total revs growth with in-line or better guide, Citrix posted a slightly disappointing quarter, highlighted by “only” in-line 4Q18 revs growth of 3%, a DR/billings miss and 1Q19 guidance that fell short

·     FCX -7%; after quarterly profit and revenue fall short of estimates as metal prices fell and costs to produce copper will be more than 60% higher this year they said

·     LVS ; after earnings results missed, as analysts expressed concerns about the company’s market share losses in Macau, particularly in the mass market, while results at the Marina Bay Sands casino in Singapore also disappointed

·     MKC -11%; results/guidance as Q4 EPS and revs missed ($1.67/$1.5B vs est. $1.70/$1.55) and guided years EPS view $5.17-$5.27 below the est. $5.39 and sales up 1%-3%

·     PTC -6%; as delivered a mixed quarter, with better-than-expected license strength and continued momentum with newer partnerships (Rockwell, Microsoft, ANSYS) offset by sales execution-related deal slippage and news that the CFO will retire

 

Syndicate

·     eHealth (EHTH) 2.4M share Secondary priced at $48.50

·     UroGen Pharma (URGN) 3.66M share Secondary priced at $41.00

·     Wave Life Sciences (WVE) 3.95M share Spot Secondary priced at $38.00

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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